We present experimental evidence suggesting that critical audit matter (CAM) disclosures in the auditor's report involving areas of high measurement uncertainty forewarn users of misstatement risk. Specifically, in our first study with MBA students, financial analysts, and attorneys, we find that CAMs (i) lower premisstatement assessments of confidence in the financial statement area disclosed as a CAM, and (ii) lower assessments of auditor responsibility for a subsequently revealed misstatement in a CAM-related area. In our second study with student participants proxying as mock jurors, we find that the responsibility-mitigating effect of CAM disclosure is driven by CAM disclosures involving measurement uncertainty, as opposed to CAM disclosures involving categorical determinations. Combined, our findings help reconcile mixed evidence from prior research, supporting the view that the forewarning effect of CAM disclosures involving measurement uncertainty could mitigate perceived auditor responsibility for CAM-related material misstatements.

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In two incentivized auditing experiments, participants who choose to acquire evidence adjust for the risk revealed by that evidence to a lesser extent than those who obtain the same evidence without investigative action, controlling for the diagnostic value of evidence. This finding follows from mental accounting and information choice theories, which in combination predict that choosing to undertake effortful investigation can magnify aversion to costly adjustments. In our first experiment, effort choice reduces adjustments only when the same participants make both decisions, not when different participants make these decisions in noninteractive pairs. We observe consistent findings in a second experiment that pairs all participants and allows interaction, with effort choice reducing adjustments only when participants responsible for evidence perceive high involvement in the adjustment decisions made by their paired counterparts. A potential implication of our study is that emerging audit technologies that facilitate evidence collection could also enhance auditor independence.

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